USD/CAD To Resume Bearish Trend
Dailyfx | Jul 17, 2014 02:52PM ET
- Canada Headline Inflation to Hold at 2.3%- Fastest Pace of growth Since 2012.
- Core Consumer Price Index to Expand 1.7% for Second Straight Month.
- Need red, five-minute candle following the CPI report to consider short USD/CAD entry
- If the market reaction favors a bullish Canadian dollar trade, establish short with two position
- Set stop at the near-by swing high/reasonable distance from cost; use at least 1:1 risk-to-reward
- Move stop to entry on remaining position once initial target is hit, set reasonable limit
- Need green, five-minute candle following the release to look at a long USD/CAD trade
- Carry out the same setup as the bullish loonie trade, just in the opposite direction
- Despite bullish break in RSI, downside remains favored given series of lower highs & lows.
- Interim Resistance: 1.0820 (61.8% retracement) to 1.0850 (38.2% retracement)
- Interim Support: 1.0580 (61.8% retracement) to 1.0600 (61.8% retracement)
Trading the News: Canada Consumer Price Index (CPI)
Canada’s Consumer Price Index (CPI) may generate a key turn in the USD/CAD as heightening price pressures puts increased pressure on the Bank of Canada (BoC) to adopt a more hawkish tone for monetary policy.
What’s Expected:
Why Is This Event Important:
Even though BoC Governor Stephen Poloz talked down the risk for inflation, sticky prices in Canada may continue to prop up interest rate expectations as the central bank adopts a more balanced view for the economy.
Expectations: Bullish Argument/Scenario
|
Release |
Expected |
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Actual |
|
Manufacturing Sales (MoM) (MAY) |
1.0% |
1.6% |
|
Building Permits (MoM) (MAY) |
2.0% |
13.8% |
|
Retail Sales (MoM) (APR) |
0.6% |
1.1% |
The pickup in private sector consumption may encourage faster price growth in Canada as the BoC looks to achieve a ‘soft landing’ in the housing market, and a stronger-than-expected CPI print may spur a more material shift in the policy outlook as the central bank softens its dovish tune.
Risk: Bearish Argument/Scenario
|
Release |
Expected |
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Actual |
|
Net Change in Employment (JUN) |
20.0K |
-9.4K |
|
Business Outlook Future Sales (2Q) |
30.00 |
24.00 |
|
Gross Domestic Product (MoM) (APR) |
0.2% |
0.1% |
Nevertheless, the ongoing slack in the real economy may continue to dampen the outlook for inflation, and an unexpected slowdown in price growth may generate a further advance in the USD/CAD as it drags on interest rate expectations.
How To Trade This Event Risk ( )
Bullish CAD Trade: Canada CPI Rises an Annulized 2.3% or Higher
Bearish CAD Trade: Headline Reading for Inflation Disappoints
Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
|
Period |
Data Released |
Survey |
Actual |
Pips Change (1 Hour post event ) |
Pips Change (End of Day post event) |
|
MAY 2014 |
06/20/2014 12:30 GMT |
2.0% |
2.3% |
-55 |
-63 |
The headline reading for Canada inflation climbed to an annualized 2.3% in May to mark the fastest pace of growth since February 2011, while the core CPI increased 1.7% during the same period amid forecasts for a 1.5% print. The stronger-than-expected prints spurred a bullish reaction in the Canadian dollar, with the USD/CAD slipping below the 1.0800 handle, and the pair traded lower throughout the North American trade as the pair ended the day at 1.0751.
--- Written by David Song, Currency Analyst
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